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Key person insurance for partnerships, and LLPs
Key person insurance for partnerships is set up differently from company cover.
Royal London says a partnership in England, Wales or Northern Ireland is not a separate legal entity and cannot take out a key person plan, so a key partner insures their own life under trust for all the partners.
An LLP, as a legal entity, can own the plan itself (Royal London ↗).
Every claim here is our summary of a named external source, linked beside it. Sources change: check the wording at the link before you rely on it.
Why partnerships need key person insurance
Royal London says a key person is typically someone whose absence would significantly affect the business's financial performance, and could include partners, members, senior employees or the owners themselves (Royal London ↗).
LV= says key person cover can keep the business operating or pay off trading debt if one of the partners passes away or has to retire early through ill health (LV= ↗).
- Loss of profits
- Having to recruit or train a replacement
- Losing personal or business contacts the key person kept up
- Loss of goodwill, which can affect raising capital or attracting investors
- Customers and suppliers losing confidence in the business
- Outstanding loans
Summarised from Legal & General's list of what a payout could help with (Legal & General ↗).
Cover for different partnership types
Partnership (England, Wales, Northern Ireland). The partnership cannot own the plan.
A key partner insures their own life and places the plan under trust for all the partners; providers often offer a specimen business trust (Royal London ↗).
For a key employee, one partner takes out the policy on a life-of-another basis, under trust for all the partners (LV= ↗).
Scottish partnership. As a separate legal entity, it can own the plan directly (Royal London ↗).
LLP. It can own plans written on a life-of-another basis (Royal London ↗), and a claim is paid directly to it (LV= ↗).
Royal London says the membership agreement matters; without one, the Limited Liability Partnerships Act 2000 decides what happens (Royal London ↗).
Rows summarise how the insurers and HMRC describe each structure; check each at its link. Aviva says its business life policy is available to limited companies, LLPs, individual partners and sole traders (Aviva ↗).
Key person insurance vs partner protection
Key person cover protects the firm's profit.
Partner protection is about who owns the firm afterwards: Aviva describes it as protection against the financial consequences if a shareholder or partner passes away (Aviva ↗).
Royal London says the price for a partner's share is usually their capital account plus goodwill (Royal London ↗).
Summarised from the insurers' adviser guides and HMRC's manual; check each at its link.
How much cover partners need
For a partner, start from profit.
Royal London uses a salary multiple only where the key person is an employee rather than a partner or member, and says profit may need to be split where there is more than one key person (Royal London ↗).
Royal London calls profit the main way to value a key person (Royal London ↗).
Legal & General routinely averages the last 2 years' profit (Legal & General ↗).
Cover can also be set at a loan the business would need to repay if the key person passed away (Legal & General ↗).
How partnership cover is taxed
HMRC says premiums a partner pays for life, accident or sickness cover on themselves or another partner are not allowable, and the benefits are not trading income (HMRC ↗).
Royal London says that where the partnership owns a plan on a key employee, proceeds are typically taxable as trading receipts; proceeds paid to partners from a plan in trust for them are generally not taxed; and where relief was given on premiums, the proceeds increase the partners' profit shares (Royal London ↗).
Summarised from HMRC's Business Income Manual. Whether the sole-purpose condition is met is a question of fact (HMRC ↗); check your case with your accountant.
How to arrange key person insurance for partnerships
These steps follow what Royal London and LV= describe.
An FCA-authorised adviser can set up the policy and the trust.
Identify
Find who the profit depends on
Partners, members, senior employees or the owners.
Agreement
Read the partnership or membership agreement
For an LLP it decides what happens; without one, the 2000 Act does.
Structure
Pick the set-up for your form
Own-life plan in trust, a partner insuring an employee, or the LLP as owner.
Trust
Use a business trust where needed
Providers often offer a specimen business trust.
Check
Use an authorised firm
The FCA tells consumers to check a firm on its Firm Checker first.
Sources: Royal London (Royal London ↗), LV= (LV= ↗), the FCA (FCA ↗).
Claims, and how they pay
The ABI named two common reasons claims were declined: existing medical conditions not disclosed, and policy definitions not met (ABI ↗).
Full, accurate answers on the application deal with the first.
Check it for yourself
Every claim on this page is our summary of one of the documents listed here.
We last checked them against the live sources on 28 September 2026.
The documents are the authority, not this page.
Insurers and HMRC update them, so validate any figure or condition at its link before you rely on it.
- Royal London: partnerships, LLPs and sole traders ↗Who can own the plan, trusts, and tax for unincorporated businesses
- Royal London: partnership protection tax ↗How partners pay for partnership protection
- LV= key person cover ↗How cover is set up for each type of business
- Aviva Business Life Insurance Options ↗Who the policy is available to, and what it is for
- HMRC Business Income Manual, BIM45560 ↗Sole traders and partners insuring themselves
- HMRC Business Income Manual, BIM45525 ↗The two conditions for deducting key person premiums
- Legal & General key person insurance ↗Who a key person is, the roles typically covered, what a payout helps with
- Legal & General adviser guide ↗Earnings, profit and loan methods for sizing cover
- ABI protection claims 2024 ↗Claims paid, and the common reasons claims were declined
Partnership cover, answered
Not financial advice. This page is general information. Before buying insurance, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗). For free guidance, see MoneyHelper.